Nou cas de Remunicipalització Aigua – Postdam (Alemania)

The privatisation of the municipal waterworks company (Wasser Potsdam GmbH) in Potsdam and its subsequent re-municipalisation is in line with the general legal framework of water management in Germany. Legally, the municipalities are obliged to provide certain services (including a water supply). The German Constitution (Art.28 abs.2) grants municipalities the right to self-administration in order to make them perform these services.In Germany, as in many other countries, privatisation and private sector participation are encouraged in order to reduce local expenditures and to provide efficient services to citizens. Potsdam is a large city with a population of 158,902 and an area of 187 km2. It is the capital of Brandenburg federal state, located 26 km from Berlin.

The Potsdam re-municipalisation is well known in the German context because it occurred very soon after the privatisation of water services. The waterworks (Wasserbetrieb Potsdam GmbH) was established in 1994 by being separated from the national water company. The wastewater services were managed by a public law entity under the control of the Potsdam waterworks.

At the end of 1997, the Potsdam City Council decided to privatise the former fully owned waterworks (a limited liability company). The city sold 49 per cent of its shares in the water company to Eurowasser, a subsidiary at that time of Suez Lyonnaise des Eaux and the German Thyssen corporations. Despite being the minority shareholder, the private partner had the right to appoint the company manager. The wastewater unit was soon merged with the privatized waterworks and the city invested in the wastewater services.

The purchase price was DM 167 million (EUR 85 million), but only a few provisions of the 13 detailed sales contracts were made known. Beyond the one-time revenues raised through the privatization, the indebted city also expected to get significant regular returns from the profits as the majority owner of the company.

Under the privatised water management scheme, a conflict developed between the municipality and Suez in 1999. Within the short period of one year, this led to a complete reversal of the agreement and the water supply was back in public hands. The re-municipalisation process in Potsdam was started when a price increase of more than 100 per cent had been planned by Eurowasser, the private operator. In reality, the city was not satisfied with the financing mechanism used by Eurowasser, who borrowed funds from a bank to purchase the shares. It was regarded as an expensive loan for the investments made.

Key actors

The re-municipalisation eventually took place in June 2000, by the time the city council prepared the buy-back. The main reason was a conflict that began in 1999 when Peter Pfaffhausen became deputy-director of the board of the water company. He was the manager of the local electricity company and represented the city on the board of the waterworks. He rejected those decisions of the waterworks management that he considered to be disadvantageous for the city: procurement contracts and expenditure recording (Eurowasser wanted to benefit by recording all expenses as investments, because these non-recurrent expenditures y are financed by the city budget alone).Another point of conflict was Eurowasser’s proposal to increase water charges. The formula to calculate the water tariff resulted in a sharp price increase: within three years it rose 33 per cent, from EUR 3.50 to 5.20 per cubic metre of potable water. By 2017, it would have risen to EUR 8.39 per m³. This drastic increase in the water price was not implemented later.

The buy-back option, although possible, was complicated because the city was supposed to give the purchase money back (for EUR 85 million) if it breached the contract. The city, however, found errors in the privatisation process: the purchase amount was not paid by the company itself but by an intermediary (a bank). The repayments of the bank loan – including the principal and the interest – were to come from water charges. In the repayment period of 20 years, the gross amount would have been approximately DM 400 million (EUR 205 million).

The city proceeded with a sort of “trick” by proposing to give both managing directors exclusive powers to represent the water company. Eurowasser appointed one managing director and the city appointed another. The city appointed director accepted the city’s proposal to terminate the contact instead of buying back shares. Eurowasser was partially compensated with DM 25 million (EUR 12.8 million) cash and some service contracts from the city.

Status

The current situation can be described as ambivalent and constantly evolving. The for-profit approach, typical of the private sector, is also still in place. The Potsdam case represents the conflict between the municipality and the private company. It is not an example of active public participation or a successful citizens’ campaign. Under the new municipal management, non-transparent management of the waterworks caused some problems when information about sponsorship contracts was not given to the public. Following this scandal, the company’s executive board was enlarged and opened to new representatives, which made its operation less controlled by the mayor and the city administration and incorporated other local stakeholders, including local political parties.

Currently, water services in Potsdam are provided by a multi-purpose limited liability company, managing both water and energy services (Energie und Wasser Potsdam GmbH, (EWP)). The city has majority shares in this company (65 per cent) and E.oN, a globally operating energy company, is the minority owner of EWP. By 2002, the city re-established municipal control over the water company under the Stadtwerke model. Ironically, the water works is a part of EWP, which is owned by the city and E.oN.

Resources/References

Hachfeld, D. (2008). The Remunicipalisation of Water. Some reflections on the cases of Potsdam and Grenoble. Paper presented at the European Summer University of Attac. 1st – 6th August 2008, Saarbrücken, Germany.
Herzberg, C. (2013). Democratic Control of Public Utilities: How can transition countries benefit? The Test of a Typology. 13th International Symposium on Public Sector Management. Tartu, Estonia.
Pfaffhausen, P. (2008). Gestaltung von Public Private Partnerships. In: Hartmut Bauer-Christiane